Being able to buy your first property has become increasingly difficult for young people in recent years. Rising house prices combined with stagnant wage growth and stringent lender requirements mean that most potential first-time buyers struggle to raise a deposit. There are, however, a number of government ‘Help to Buy’ schemes in place that may assist.
In this blog, I take a look at one such scheme: Shared Ownership.
Shared Ownership is where you buy a share (25-75%) of a property and the landlord (usually a Housing Association) owns the remaining share. You will pay rent on the share of the property that you don’t own and you may also have to pay a service charge and maintenance fees, particularly when the property is a flat. In most instances, you will be able to purchase further shares in the property, up to 100%.
Here are my top 7 things you should know before buying a shared ownership property:
(1) Know what you are buying. When buying a shared ownership property, you are purchasing a share of a property and the remaining share will be retained by the Housing Association selling the property. All shared ownership properties are leasehold whether they are a flat or a house. Therefore, you will continue to be a tenant on the share not owned by you and this will be subject to rent, and restrictions as to your use of the property.
(2) Be aware of the eligibility criteria. You will need to be approved by the Housing Association to purchase a shared ownership property. You will qualify for the scheme if:
- Your household earns £80,000 or less a year (or £90,000 or less in London)
- You are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.
(3) Buying more shares: You may have the option to purchase further shares depending on your lease. This is known as ‘Staircasing’. There is no obligation to do this and you can stay with your original share as long as you like. If you buy further shares, the rent you pay on the share you do not own will go down. A surveyor will normally assess the value of your home based on the market value at that time, so that the value of further shares can be calculated. If house prices increase, you may have to pay more to buy another share than when you originally bought it.
(4) Beware of Stamp Duty. If you are buying a shared ownership property you will need to make a decision as to how to deal with stamp duty. You can either pay on your initial share or on the full market value of the property. By choosing to pay on your initial share be aware that the initial share does not always fall below the threshold for stamp duty and will not eliminate your need to pay stamp duty in the future. If you decide to pay on your initial share, and you subsequently staircase to 80% or more, then further stamp duty will become payable. If you elect to pay stamp duty on the market value of the property at the time of purchase, you will not have to pay stamp duty again, even if you staircase to 80% or more.
(5) Selling your home. If you own a share of your home, the housing association has the right to buy it first. This is known as ‘first refusal’. The housing association also has the right to find a buyer for your home
(6) Improvements and repairs. Until such time that you own 100% of the property, you should note that you will not be able to make structural changes and certain home improvements to the property without first obtaining the consent of the Housing Association.
(7) Know your choices. There are several choices available for affordable housing being offered by the government including Help to Buy Equity Loans, Shared Ownership schemes and Help to Buy ISAs. You should do your research to ensure that you are picking the best product available to suit your needs.
Speak to Switalskis’ Conveyancing Team today for a quote, call 0845 138 0458 or complete the contact form below and we’ll call you back.
Disclaimer: The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice, and the law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice on their own particular circumstances.